Shares in Vodafone fell on Wednesday after Verizon Communications ruled out a full takeover, turning the focus yet again to whether the two telecom giants can do a deal over their Verizon Wireless joint venture.
The British group's shares have risen more than 25 percent this year on hopes that it would sell its 45 percent stake in Verizon Wireless for around $115 billion and end an often fractious relationship.
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But with a sale likely to incur a tax bill for Vodafone in the region of $20 billion, investors and analysts had suggested the two groups may prefer to merge. The denial of that option by Verizon late on Tuesday pushed shares in Vodafone down 3.6 percent on Wednesday.
"As Verizon has said many times, it would be a willing purchaser of the 45 percent stake that Vodafone holds in Verizon Wireless," it said. "It does not, however, currently have any intention to merge with or make an offer for Vodafone, whether alone or in conjunction with others."
Strategists at Olivetree Securities said the statement was aimed at Vodafone shareholders, to try and break the deadlock that has existed since Verizon Wireless was formed by the two groups in 1999.
"That message appears to be: 'If you want a deal, it's your own management team holding this up - you need to tell them to engage more intensely/shift their price expectations'," Olivetree said.
"Speculation of a resolution to this story will continue and thus Vodafone shares won't fall far."
Verizon released its statement late on Tuesday evening after the Financial Times Alphaville blog cited unnamed sources as saying Verizon and its biggest U.S. rival, AT&T Inc. , were working together on a joint bid.
The blog said that, under the plan, Verizon would take Vodafone's U.S. assets and AT&T would take the rest.
It was the latest of several reports speculating on the future of Vodafone as investors ask whether it should restructure and sell the Verizon Wireless stake, its best performing asset.
Several people familiar with the situation have told Reuters the two partners have held regular, senior-level talks to discuss options for either a full takeover, a stake sale and any resolution to the capital gains tax problem.
Vodafone has lawyers from Linklaters, bankers from UBS and consultants from McKinsey looking at deal options and structure, according to three people familiar with the situation.
But London-based analysts, investors and banking sources believe the two sides will struggle to agree a price that suits both groups.
That could leave the two firms stuck with the status quo, with Vodafone holding a minority stake in its most important asset and Verizon unable to own all of a business that it has long coveted.
"We think that the wording of Verizon's press release also makes it clear that Verizon have made their interest in the Verizon Wireless stake to Vodafone and been rebuffed," Bernstein analyst Robin Bienenstock said in a note.
"In other words we view Vodafone as a (very) reluctant seller. The structure delivers Verizon Wireless distributions to Vodafone tax-free, making it more valuable to Vodafone in its current form than in a sale to Verizon."
(Editing by Tom Pfeiffer)